Is China Sky One a buy right now?
September 07, 2010
– Comments (3) |
RELATED TICKERS: CSKI.PK
, SAYCY.DL
Ooh... that's a tough one. It is hard to say, because it was fast-growing, cheaply valued, and suspected of fraud. Then its price dropped 30% over the weekend on news that it won't be growing as quickly, and the CFO resigned right before the 3-day weekend. So its growth is in question, its valuation is even more compelling, and the charges of fraud are more compelling as well. Maybe its cash and other assets are fake, as in the case of Satyam (SAY). Maybe it will never be a going concern. Maybe it will go to $0.02 as the scandals mount.
I still think those possibilities are pretty unlikely. I am very dismayed by the huge cut to CSKI's projected growth, and the loss of several of their most important distributors, but the valuation is just too low here. It is selling for less than book value, and while the lowered guidance is approximately 0% growth, it is not shrinking, either. For a company trading for well under 3x earnings, with no debt, a decent-sized cash hoard (assuming fake cash is not becoming an epidemic), and a pretty strong history of, commitment to, and opportunity for, growth, a 0% growth rate for one period is not bad at all. Even if the 0% growth rate continues for one to two years, the allaying of corruption fears could send the stock skyrocketing.
So what are the odds that it really is fraudulent? With the CFO resigning, I think that is the question on many people's minds. It is a good question, and I don't know the answer. I don't know how to research the question, and I don't know if anyone can answer it satisfactorily. But here's one thing I know:
Satyam was beaten to a pulp and left for dead when they were discovered to be fraudulent, and at the post-scandal prices, they were a tremendous investment. It has more or less quintupled since it was cut to pieces on the news that all of the cash on its balance sheet was a big, fat lie. If nothing similar happens with CSKI, you will probably wish you had bought some for under 7. If something similar does happen, it will still very likely be a buy at its new price. That would be an opportunity for anyone who still has investable monies and is watching CSKI - people who are tip-toeing into positions now, for instance.
In a way, what happened today (actually this past weekend) is likely to be analogous to Satyam's bombshell. I call CSKI at today's price a buy, even with all the stink around it. But watch for another shoe to drop, which would look bad on paper, and be another buying opportunity.
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